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US Labor Data Sets Up Better US NFPs; EUR/USD Falls On Release

US Labor Data Sets Up Better US NFPs; EUR/USD Falls On Release

Christopher Vecchio, CFA, Omar Habib,

Talking Points:

- Labor data beat expectations, looking to reverse trend of slowdown in employment growth.

- Fed centrists and leaders have said a trend of +100k job growth is enough.

- EUR/USD rises slightly as the USD strengthens on the news.

The first look at June US labor data came in above expectations and roughly in line with trend, setting up Friday’s US Nonfarm Payrolls release to post a rebound after May’s abhorrent number. US ADP employment came in at +172K, beating expectations of +160K.

ADP employment is an guide of what to expect for Friday’s NFP report but it is not a direct link; a contemporaneous relationship has been exhibited. Yet it’s worth pointing out that ADP has exceeded NFP’s payroll growth in eight of the last twelve reports. Elsewhere, weekly jobless claims came in at 254K, beating expectations of 269K – another piece of evidence that the May NFP reading may be a ‘one-off.’

In looking to tomorrow’s June US NFP report, one number to pay close attention to, other than the headline job growth number, is a revision to last month’s data, which had a 90% confidence interval of plus or minus 115,000 jobs – meaning that May’s change in employment could have been between a loss of -77K or a gain of +153K. A strong revision to last month’s data could be a strong market mover.

The trend of 200k jobs growth per month has recently been a psychological level for markets, but Fed leaders and centrists (the Goldilocks of the Fed; not too hawkish or too dovish) tend have another number in mind. In October 2015, San Fran Fed President John Williams wrote in a research note that he believed growth of +100K jobs per month was enough to sustain the growth in the labor force and maintain the current unemployment rate. In December 2015, Chair Janet Yellen reiterated this same view. By the Atlanta Fed Jobs Growth Calculator, assuming a 4.8% longer term unemployment rate, the economy only needs +105k job growth per month to sustain that level.

See the DailyFX economic calendar for Friday, July 7, 2016

Chart 1: EUR/USD 1-minute Chart (July 7, 2016 Intraday)

US Labor Data Sets Up Better US NFPs; EUR/USD Falls On Release

In an immediate response to the data, EUR/USD slipped, trading to $1.1067 from $1.1087, and then recovered to near $1.1090. By the time this report was written, EUR/USD had settled near $1.1090. With FX volatility edging higher again, it’s the right time to review risk management principles to protect your capital.

Read more: July Forex Seasonality Sees Softer US Dollar, but Brexit is a Major Wrinkle

--- Written by Christopher Vecchio, Currency Strategist and Omar Habib, DailyFX Research

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com

Follow him on Twitter at @CVecchioFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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